The Economic Stimulus Act of 2008, which was signed into law on Feb. 13, will provide for cash payments to more than 130 million individual taxpayers, but it also provides for increases in the expense election and first-year “bonus” depreciation on qualified depreciable capital assets acquired by business taxpayers, according to Keith Kightlinger, University of Georgia Extension economist-farm management.
“Economic stimulus payments will be made by the United States Treasury during late spring and summer, 2008,” says Kightlinger. “Most Americans who qualify for the economic stimulus payment will need only to file their 2007 federal income tax return to receive the payment. The payment will not be a part of any refund of 2007 income taxes due to individual taxpayers, but will be a separately issued check.”
The IRS will use taxpayers' 2007 income tax returns to determine eligibility for the economic stimulus payments, he adds, and to calculate the amount of the payment due to an individual taxpayer.
Payments will be based on the tax liability shown on the 2007 return (prior to application of the Child Tax Credit), with the maximum payment being $600 for an individual ($1,200 for taxpayers filing a joint return), and the minimum payment being $300 for an individual ($600 for taxpayers filing a joint return, according to Kightlinger.
“Taxpayers with little or no tax liability will qualify for the $300 minimum payment ($600 for taxpayers filing a joint return), if their tax return shows at least $3,000 of qualifying income. Under the Act, qualifying income includes wages and net self-employment income, and Social Security and certain Railroad Retirement benefits, and veterans' disability compensation, pension, and survivors' benefits received in 2007 from the Department of Veterans Affairs. Supplemental Security Income (SSI) is not qualifying income for the economic stimulus payment, however,” he says.
Low-income taxpayers who have qualifying income of at least $3,000 but who are normally not required to file an income tax return must file a 2007 tax return to receive the minimum economic stimulus payment, says Kightlinger.
Parents and other individuals qualifying for the economic stimulus payment will receive an additional $300 payment for each qualifying child listed on their 2007 federal income tax return, he continues. A qualifying child is one having a Social Security number and who is eligible for the Child Tax Credit.
Only taxpayers having a valid Social Security number are eligible for economic stimulus payments, says Kightlinger. Individuals filing using an Individual Taxpayer Identification Number (ITIN), an Adoption Taxpayer Identification Number (ATIN), or any other identification number issued by the IRS are not eligible for the economic stimulus payment.
Economic stimulus payments — both the basic amount and the amount for qualifying children — are subject to a maximum income limit. Economic stimulus payments will be reduced at the rate of 5 percent of the amount of the taxpayer's Adjusted Gross Income (AGI) in excess of $75,000 for individuals and $150,000 for married taxpayers filing a joint return.
There are also provisions in the Economic Stimulus Act that apply to business taxpayers, says Kightlinger. “Prior to passage of the legislation, the Internal Revenue Code Sec. 179 expense deduction for qualifying depreciable assets placed in service in the years 2007 through 2010 was to have been $125,000, with the deduction to be reduced on a dollar-for-dollar basis if the basis of qualified assets placed in service during tax year exceeded $500,000.
“These amounts were scheduled to be adjusted annually for inflation. But under the Economic Stimulus Act of 2008, the I.R.C. Sec. 179 expense deduction for taxable years beginning after Dec. 31, 2007, and before Jan. 1, 2011, is increased to $250,000, with the phase-out threshold increased to $800,000. The new limits will not be adjusted annually for inflation,” he says.
Kightlinger says the Stimulus Act also reinstates for all business taxpayers the Special Depreciation Allowance contained in I.R.C. Section 168(k). The Special Depreciation Allowance permits additional first-year depreciation equal to 50 percent of the qualified property's adjusted basis. The Special Depreciation Allowance is generally permitted for qualified property placed in service after Dec. 31, 2007, and before Jan. 1, 2009. Qualified property is property depreciable under the MACRS depreciation system which has a recovery period of 20 years or less, and “off the shelf” computer software.
For example, let's say that C-Corp purchases $650,000 of depreciable assets during 2008, says Kightlinger All of their acquisitions qualify for the expense deduction under I.R.C. Sec. 179, and for the 50 percent “bonus” depreciation under I.R.C. Sec. 168(k)(2).
“C-Corp may claim up to $250,000 section 179 expense election, reducing the adjusted basis of the property acquired and placed in service in 2008 from $650,000 to $400,000. C-Corp may also claim the 50 percent ‘bonus’ depreciation on the $400,000 adjusted basis, leaving an adjusted basis of $200,000 for recovery through regular depreciation.”
If all of C-Corps's 2008 purchases are classified as five-year recovery period property for MACRS depreciation, and C-Corp uses the 200-percent declining balance method of depreciation, its 2008 deductions relating to its 2008 depreciable asset purchases are:
$250,000 Section 179 expense deduction.
$200,000 Section 168 “bonus” depreciation.
$40,000 Section 168 regular depreciation.
C-Corp, he says, may deduct up to $490,000 of its $650,000 2008 depreciable asset purchases on its 2008 federal income tax return.
For additional information about the Economic Stimulus Act of 2008, go to http://www.irs.gov/newsroom/index.html to access this information, and click on “Information on Stimulus Payments.”